Links: 2013-02-11

News Links for 11 February 2013


Fiscal policy and the (delayed?) federal-state divergence | FT Alphaville

“The contribution of federal fiscal policy in the recovery, on the other hand, ran ahead of the prior recessions’ average for a while, helped especially by the stimulus funds (the overall effect would be even more noticeable if tax cuts and transfers were included in the charts). But it later turned negative, and the problem has been exacerbated this year by the fiscal cliff agreement, most notably including the terrible idea of allowing the payroll tax cut to expire.

Unfortunately, unless avoided, the sequestration cuts that are set to take effect in March would also affect state governments through the various avenues we discussed earlier — and perhaps keep them alongside the federal government in the headwinds category for longer than was hoped.”

Should an armed drone be dispatched to kill Christopher Dorner? | Glenn Greenwald | Comment is free |

“Here’s my question: if the surveillance drones detect his location, should the lives of law enforcement agents be risked, along with other civilians, in an attempt to apprehend this highly-trained warrior? Why shouldn’t an armed drone instead be immediately dispatched once his location is ascertained and simply kill him?

For those of you who believe it’s possible to know someone’s guilt without a trial, there is very little doubt about his guilt. Nobody has contested the authenticity of the confession posted in his name, nor the threats of further killing. He admitted and justified the killings on his Facebook entry.

For those of you who believe there is a clear definition of “terrorism”, Dorner meets it easily.”

Scotland Faces Hurdles if It Votes for Independence –

“Scotland would have to renegotiate membership in the European Union and other international organizations if it votes for independence in a referendum next year, according to legal advice published on Monday by the British government.”

Marshall Auerback on Markets Now 02-11-2013 – YouTube

Here’s Marshall AUerback on Fox about US deficits. The point he’s making is that deficits are ex-post, meaning they are the symptom of deleveraging and income shortfalls in the private sector due to high private debt and unemployment. Cutting government expenditure or raising taxes in that scenario sucks money out of the private sector and increases debt stress. The result is further private sector retrenchment, higher unemployment and less deficit cutting than anticipated. In a worse case scenario, the deficit can increase.

DOJ kill list memo forces many Dems out of the closet as overtly unprincipled hacks | Glenn Greenwald | Comment is free |

“Baker also noticed this: “Some liberals acknowledged in recent days that they were willing to accept policies they once would have deplored as long as they were in Mr. Obama’s hands, not Mr. Bush’s.” As but one example, the article quoted Jennifer Granholm, the former Michigan governor and fervent Obama supporter, as admitting without any apparent shame that “if this was Bush, I think that we would all be more up in arms” because, she said “we trust the president”. Thus did we have – while some media liberals objected – scores of progressives and conservatives uniting to overtly embrace the once-controversial Bush/Cheney premises of the War on Terror”

4 reasons why Chinese growth may be stronger than many think – The Globe and Mail

This is the bullish case for China which doesn’t represent my view. But you should read it because it tells you what China bulls are thinking. I think Stephen Roach’s more nuanced positon is superior i.e. this is China’s last chance to reflate in an unbalanced way and avoid disaster.

“Reason 1: Fears that China’s export sector will sputter due to a loss of competitiveness and rising labour costs are overblown. Sure, some lower paying work may migrate to poorer countries in Asia, but China is starting to move into more profitable, higher value-added manufacturing that requires skilled and more pricey labour.

Reason 2: A growing middle class numbering 300 to 400 million people will trigger substantial consumer and investment spending. A knock against China has always been that its economy is overly dependent on exports and investment. But China is changing quickly and growth is about to be boosted by the needs of its increasingly wealthy middle class.

Reason 3: China tightened the monetary spigots because of worries about inflation. But prices seem to be under control and the housing market has cooled. Residential construction could come roaring back to its traditional 40 per cent share of fixed investment from the currently depressed 35 per cent. This would add several percentage points to growth.

Reason 4: The government will boost stimulus spending should it be needed. Those fearful of a hard landing have to keep in mind that the government has shown itself to be adept at intervening at key points to keep growth buoyant. That is unlikely to change any time soon.”

Ireland shows the way with its debt deal –

Notice that Wolfgang  Munchau sees this kicking can deal for what it is, a way of buying time that could eventually mean full debt relief down the road. David McWilliams has the politics totally wrong in his arguments that Ireland needs to play hardball. This is going to work in my view.

“Ireland will have to be in a fairly healthy position before it can start repaying the money. A future Irish government may choose not to repay the loan, or only parts of it, or demand a further extension. My best guess is that one of these things will happen, which means that the reduction in net present value will approach 100 per cent.

This is monetary financing for all intents and purposes. “

Econbrowser: Dude, where’s my cheap gas?

We may think that the boom in shale is significant. However, if you believe peak oil has any validity, you would see this as insufficient to cause a significant drop in prices.

“According to the EIA, world petroleum production in the first 10 months of 2012 averaged 88.8 million barrels a day. That’s 2 mb/d, or 2.3%, higher than in 2010. The IMF estimates that world GDP grew by 7.1% between 2010 and 2012. If we used a global income-elasticity for petroleum demand of 0.75, we might have anticipated that a 5.3% increase in petroleum production over the last two years would have been necessary to keep the price of oil from rising. Ongoing conservation, for example, in the form of continued improvement in fuel economy, has been a key factor keeping the oil price from rising more in the face of world income growing much faster than world oil production.

China likely consumed nearly half of the global 2 mb/d increase. The EIA reports that China increased its petroleum consumption by almost 500,000 b/d in 2011, and preliminary estimates are that China added another 420,000 barrels to its daily consumption in 2012.”

Noahpinion: The Koizumi years: A macroeconomic puzzle

I am sure Japan watcher Marshall Auerback has something to say about this analysis. I will confer with him to get a better handle on what is going here behind the pretty pictures. I do know that exchange rate volatility was high during the Koizumi years, with the yen depreciating to near 135 to the USD in 2002 before vaulting higher to near 100 yen per USD by 2005 and beginning another drop to the 120 level through 2007. The fact that exchange rates aren’t mentioned is a glaring error.

Amazon unpacked –

“If anyone should still be a cheerleader for Amazon, which has created hundreds of jobs in the past 18 months in a community that sorely needs them, it is Glenn Watson, manager of economic development at the district council. But he is dismayed. “They’re not seen as a good employer. It’s not helpful to our economy; it’s not helpful to the individuals,” he says. Britain’s economic transformation is playing out in miniature in this smoky little town. It hasn’t been a smooth ride.”

Robert Shiller: Don’t Invest in Housing – PRAGMATIC CAPITALISM

“This is a contentious debate.  In strict economic terms housing is viewed as investment and not consumption.  That’s why the BLS doesn’t include house prices in the CPI.  Even though housing includes fixed investment, you’re really consuming your house over the course of many years so there’s elements of both consumption and investment in housing.  The reasoning Dr. Shiller uses here is a big part of the consumption.  A house is a depreciating asset even though the land might not be.”

Payroll Tax Holiday Ends, Consumers Scrimp –

“It is possible that after the initial shock of a tax increase sinks in, consumers will just dig deeper into savings to keep spending. People also are borrowing more, but through student and auto loans, not credit cards. That suggests they remain uncomfortable about taking on debt.

The tax holiday—aimed at boosting the economy early in the recovery—shaved a worker’s share of the Social Security tax to 4.2% from 6.2% in 2011 and 2012. The Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute, estimates that gave households on average an extra $900 to $1,000 a year.

The end of the tax holiday comes as Americans shell out more for gasoline. Gas prices have jumped 7% this year, to $3.54 per gallon on average, which further erodes households’ spending power.”

The Netherlands adds ‘slow-motion bank wrecks’ to list of things it’s known for, right after ‘clogs’ and ‘windmills’ | FT Alphaville

“Surely there would have been some worrying results in the European Banking Authority’s Capital Exercise from last autumn.

Umm, no, actually. (Probably saw that coming, didn’t you?)

SNS Bank reported 13.0 per cent Tier 1 capital as a percentage of risk-weighted assets as of June 2012. For comparison, ING had 13.4 per cent, Rabobank 16.9 per cent, and government-owned ABN Amro 12.5 per cent.”

Fears that fake ‘beef’ could be from donkeys –

“The law, which was passed six years ago but only enforced recently, also banned carts drawn by donkeys, leading to speculation among food-industry officials in France that some of the ‘horse meat’ that has turned up on shelves may, in fact, turn out to be donkey meat.”

Rent costs up 2pc in first rise since 2007 –

“But a new report says that the increase is only occurring in bigger cities including Dublin, Cork and Galway, and that there is a danger of a housing shortage in these areas.

The rental report, published today, says the biggest rise is in the capital, where rents have increased by 6pc. At the other end of the scale, the sharpest fall has been in Carlow, where rents dropped by 4.6pc.

The average national rent rose 2.2pc during 2012, and currently stands at €808. This compares with €790 in late 2011.”

BBC News – Australia home loan approvals decline for third month

“Australian home-loan approvals are down for a third month despite the central bank cutting its main interest rates.

Approvals fell 1.5% in December from November, the statistical bureau said.

Australia’s central bank cut interest rates four times in 2012 in an attempt to boost investment and growth in non-mining sectors such as construction.

However, analysts said many mortgage lenders had not passed on the lower borrowing costs, while consumers feared that rates may climb again.”

BBC News – Horsemeat scandal: France summons meat industry chiefs

“French ministers are to hold talks with key players in the meat industry as the horsemeat scandal widens to up to 16 countries.

Seven French supermarket chains have withdrawn frozen beef meals made by Findus and Comigel.

The move followed the discovery that foods sold in Europe and the UK labelled as beef contained horsemeat.

The scandal has raised questions about the complexity of the food industry’s supply chains across the EU.”

READ: The White House explains how the sequester cuts would work

“The key feature of the cuts is that they would affect all agencies and programs equally — federal officials would not be able to pick and choose which programs get protected and which get the ax. The White House fact sheet below lists some examples of programs that would see cuts”

Automatic budget cuts are almost certain –

“The ax is set to fall March 1 — with the first installment of $1.2 trillion in reductions over the next decade — because lawmakers can’t agree on an alternative.”

DHS Watchdog OKs ‘Suspicionless’ Seizure of Electronic Devices Along Border | Threat Level |

“The Department of Homeland Security’s civil rights watchdog has concluded that travelers along the nation’s borders may have their electronics seized and the contents of those devices examined for any reason whatsoever — all in the name of national security.”

Microsoft’s 128GB Surface Pro Sells Out At MS Online Store Just Hours After Launch | TechCrunch

“Microsoft’s $999 128GB Surface Pro has sold out in the online Microsoft Store in the U.S. (via WinBeta), just a few hours after going on sale today, February 9. The 64GB version is still available as of this writing, and the Surface Pro is still likely in stock at physical retail locations like Best Buy, where it also went on sale today, although checking the stock levels via their online tool reports the Surface Pro as “Unavailable” across the board.

The Surface Pro is Microsoft’s more powerful, Intel-powered Windows 8 tablet, which runs the full version of Windows 8 unlike the Surface RT and can handle full-fledged Windows desktop applications. In the TC review, John Biggs said that the Pro was a much more compelling device than the RT, in part because of its ability to run software that enterprise IT departments depend upon from legacy windows installations.”

Spain Nationalizes Lender –

“Spain is set to nationalize struggling regional lender Banco CEISS after an external valuation of the bank showed it had a negative value of €288 million ($385.9 million).

Spain’s bank bailout fund, the FROB, said Friday that the valuation will serve as the basis for a planned recapitalization of CEISS, the result of a merger of two small savings banks—Caja España and Caja Duero.

Spain had already said it would inject €604 million into CEISS, a move that will wipe out existing shareholders.

The retail bank had 910 branches at the end of 2011, most of which are based in its home region of Castilla y Leon in the northwest of Spain, and just over €30 billion in outstanding loans.”

Aldi confirms up to 100% horsemeat in beef products | Business |

“Supermarket says it is angry with supplier Comigel after tests reveal 30% and 100% horsemeat in withdrawn ready meals”

David McWilliams » No matter how Coalition dresses it up, we cannot afford to pay Anglo’s debt

“Paying over a longer period is good news for all of us relative to paying the lot over 10 years. But it is not good news relative to paying nothing at all or to extending the promissory note out for a few hundred years. After all, we could have set the terms of our own promissory note schedule had we the inclination to do so.

More interestingly, we could have paid nothing at all, let the Central Bank continue to finance Anglo and positioned ourselves on a collision course with the ECB. The Government didn’t have the stomach for this scrap and so the ECB’s sweetener for taking the debts of Anglo on as sovereign debt is a long-term horizon to pay the stuff.

The ECB has got what it wants. The pesky promissory note, which it never liked, is gone. Ireland has more debt but at low rates of interest.”


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